Two Years Since the Collapse of Lehman Brothers

It was two years ago today. A shock wave was sent through America and the rest of the world on Monday, Sept. 15, 2008. The previous shock waves, which were experienced by huge banks — Bear Stearns, Freddie Mac, Fannie Mae* — had somehow been absorbed. Even the near-bankruptcy of the giant investment bank Merrill Lynch, which had run into serious difficulties, was eventually absorbed. The company was, in fact, rescued at the very last minute by Bank of America. However, on Sept. 15, 2008, the collapse of Lehman Brothers — another major investment bank that was in danger of sinking and that cried in vain for help — could not be absorbed.

The bank plummeted, marking the beginning of the economic crisis in the world.

An alarm bell sounded all over the globe. The collapse of Lehman Brothers threatened to turn the financial turbulence that was gripping America into a full-blown crisis. Many other regions of the world were faced with the same threat.

A crisis?! What a terrible word. The Americans, always sensitive when it comes to the words employed in public communication, were wary of it. Many psychologists were arguing that it was better to avoid the word “crisis,” given the severe circumstances on the U.S. financial markets, because the word was too harsh. The word “turbulence,” already used by many people, seemed to be less shocking.

The first to use the word “turbulence” was Alan Greenspan, who served as the chairman of the Federal Reserve of the United States for almost two decades before the crisis. In fact, this was the title of the famous book he published just when the turmoil was starting: “The Age of Turbulence.”

How did it all begin? The world’s economists are still looking for the answers. At that point, countless experts ventured to say that the crisis had begun on the real estate market and that the primary culprit was the subprime mortgage. Gradually, however, as the analyses went deeper, an increasing number of experts realized that to restrict the causes of the downturn would stand in sharp contrast to the actual reality, as this was a major crisis that took its toll on the financial markets and caused long-lasting recessions.

Afterward, they understood that the current crisis is nothing like the previous ones. For a long time up until now, history has experienced overproduction crises. However, America is now, for the first time ever, facing an overconsumption crisis. The root cause of the new crisis is consumption or, to be more precise, excessive consumption supported by excessive lending. Hence, the remodeling role of the current crisis, as it was obvious from the very start that this was a phenomenon that would reshape the entire world for many years to come, causing an adjustment of consumption and even a change of lifestyle. The starting point is the limitation of lending. The consequence is that there will be less and more expensive money.

The current crisis, which originated in America and was based on overconsumption, was only possible in the 21st century, when the well-being acquired on credit became popular in vast regions of the world, without being, in many cases, supported by a healthy economy. What is worse, it was based on obese economies, inflated with overconsumption, deficits and perfidious inflations.

The truth is that it all began because of too much greed. The financial markets started to endlessly multiply money. Or rather, the financial markets started to multiply financial instruments — and derivative instruments, in particular — often forgetting that money, even within financial capitalism, needs a foundation: productive work. We ended up with a crisis that was possible only in the 21st century, in a period dominated by highly sophisticated technologies that make money move in unprecedented ways and means. During the fall of 2008, the global financial downturn that had been experienced for over a year — since August 2007 — took a turn for the worse, just when there was hope that things would get better. And suddenly, the commotion broke out. America’s great financial companies, with branches in Europe and other continents, were threatened with extinction. Some were destroyed; others were rescued at the last moment. However, when Lehman Brothers collapsed, the crisis could no longer be avoided. And we witnessed things that would not have seemed possible a year earlier: The Bush administration and the Fed joined forces in order to rescue the affected companies. A financial Marshall Plan worth $700 billion was quickly activated. Would it be the final solution, or would things go even farther? No one could answer back then. And, unfortunately, no one can foresee the things to come now either.

A historically proven, common trait of economic crises, which helps people get by, is that these periods come and go. The tragedy is that although they do end — some faster than others, some perhaps in only a few years — what they leave behind is bankruptcy, unemployment, poverty and suffering.

*Editor’s Note: Freddie Mac and Fannie Mae are government-controlled companies that help provide money for the U.S. housing market by buying residential mortgages and packaging pools of those loans for sale to investors.